How Digital Transformation Fits into the Food and Grocery Retail Supply Chain
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Market Overview
- The global food and grocery retail market is expected to reach US$14.6 trillion in revenue by 2026. The highest Compound Annual Growth Rates (CAGRs) of the food industry are expected in the regions of Asia-Pacific, Latin America, and Africa due to booming populations and a changing demographic from agrarian systems to more institutionalized food retail.
- ABI Research forecasts the online grocery market to reach US$1.04 trillion by 2026, with significant regional differences even on the same continents. For example, online currently accounts for 9% of France’s grocery market, whereas in Germany, online market share sits lower at 2.7%.
- In 2026, Business-to-Business (B2B) grocery warehouse throughput will be 5.3 billion units, compared to 1.9 billion in 2022. For the Business-to-Consumer (B2C) space, grocery warehouse throughput will reach 33.1 billion units annually by 2026, almost double the 1.8 billion units in 2022.
- The Asia-Pacific region accounts for more than half of all grocery warehouse unit throughputs in both the B2B and B2C segments, with the latter encompassing 79% of throughput worldwide.
- Considering all regions, Warehouse Management System (WMS) revenue in the food and beverage industry will reach US$975.2 million by 2026, with North America being the biggest adopter (US$331.3 million in revenue by 2026).
“The COVID-19 pandemic accelerated a change in the way we shop, increasing demand for omnichannel offerings from retailers, such as e-commerce and frictionless shopping experiences. And growing regulation worldwide is pushing food retailers to capture and deliver End-to-End (E2E) traceability not just for authorities, but for consumers seeking greater visibility into their products.” – Ryan Wiggin, Industry Analyst at ABI Research
Key Decision Items
Technology Vendors Should Take a Gradual Approach toward Automation
Between high upfront costs and a tumultuous economic climate, supermarket and grocery supply chain leaders will find modular or retrofitted technology solutions to be attractive. Besides, in a lot of cases, large-scale digital transformation, such as full-fledged warehouse automation, is not required. Because the shipment volume of many foods varies based on the season or days of the week, automated solutions can be turned off when not needed.
The idea is to get enterprise buy-in through small, incremental steps, rather than full-scale transformations. Doing so will alleviate the distress caused by radical and expensive technological changes in retail operations. Even more, these small-scale deployments, such as Collaborative Robots (cobots) or automated picking equipment, can showcase the value of automated technologies without as much risk.
Food and Grocery Supply Chain Leaders Must Seek Scalable Offerings
For food and grocery logistics decision makers, technology investment in an increasingly budget-hungry environment can be tough to justify. However, you can still explore the feasibility of digital transformation with small deployments that are designed to scale. Additionally, the shift toward cloud-based Software-as-a-Service (SaaS) and Robotics-as-a-Service (RaaS) models by vendors makes digital transformation more accessible to supermarkets and retail chains. These flexible aaS solutions take care of automatic updates, newly installed capabilities, and better maintenance.
Monitor Food and Grocery Supply Chain Regulation Changes and Be Regionally Aware
In every corner of the global supply chain, there are various laws, codes of practice, and guidance documents in place to regulate the food we consume. These regulations cover both production and distribution. Food and grocery supply chain regulation affects farming, processing, packaging, labeling, importing, distribution, retailing, and catering. With more and more regulations being introduced around the world, food and grocery retailers need digital assistance, particularly for food traceability and asset tracking.
For technology vendors in the supply chain space, it’s crucial that you understand the tracking requirements for various national regulations. This especially rings true in the Asia-Pacific region, a key logistical touchpoint that entails many different regulations. Multinational supermarkets and other retailers will undoubtedly seek out IoT technologies that provide robust asset visibility to simplify compliance processes. Moreover, retailers, especially cold chain operators, need solutions that enable them to easily relay product information to local authorities to evade delays or shipment rejections.
For full presentations on grocery and food industry track and trace regulations around the world, please see the following ABI Research presentations:
- Asset Visibility: Grocery and Food Industry Track and Trace Regulations in Asia-Pacific (PT-2581)
- Asset Visibility: Grocery and Food Industry Track and Trace Regulations in Europe (PT-2580)
- Asset Visibility: Grocery and Food Industry Track and Trace Regulations in North America (PT-2579)
- Asset Visibility: Grocery and Food Industry Track and Trace Regulations in Rest of the World (PT-2582)
Ensure Ongoing Maintenance, Improvement, and Engagement
Given the fast-moving nature of the food and grocery industry, downtime would deliver a big blow to the end retailer. That’s why it’s so important for supply chain technology vendors to ensure operational continuity in the event that equipment experiences issues. Although the best outcome is identifying equipment issues beforehand, this may not always be the case. To keep food and grocery supply chain operations flowing, technology vendors should promise rapid maintenance response support in agreements. Through reassurances, more trust can be built with retail customers—which is key to scaled adoption later.
Retail Supply Chain Stakeholders Should Focus First on Forecasting and Deeper Analysis
From raw material providers to manufacturers, accurate demand forecasts are the center of retail supply chain operations at every level. As evidenced by the COVID-19 pandemic (think toilet paper or hand sanitizer during the pandemic), supply chain resiliency in the food and grocery space relies on new forecasting tools that improve availability and transmit accurate signals to various supply chain channels. For example, the underused Artificial Intelligence (AI)- and Machine Learning (ML)-powered forecasting platforms factor in far more than just historical data to predict demand. These algorithms consider different external factors, such as weather or events, to provide all supply chain stakeholders with an unbiased and reliable on-demand forecast for strategic planning.
From the perspective of ABI Research, demand forecasting and delving into deep analysis should be the first key step taken in digitally transforming your retail supply chain. As a result, your organization can pinpoint where pain points exist and help develop a more informed cost-benefit analysis. In turn, digital transformation investments will flow to the right places at the right time.
The Food Industry Can Draw Valuable Insight from the Pharmaceutical Industry
Food and grocery players can learn some valuable lessons from the Research & Development (R&D)-heavy pharmaceutical industry. Cold chain management has many parallels with the supermarket supply chain. For example, the track-and-trace regulations that first materialized in the pharmaceutical industry are sluggishly nestling their way into food regulation.
When the pharmaceutical supply chain was faced with these asset tracking stipulations, it led to an array of chaos. Pharmaceutical companies had to turn to IoT and software providers to deal with operational disruptions on deployment, challenges in replacing legacy equipment, an immense new volume of data to handle, and integrating new systems that many food companies are either currently experiencing or are fast approaching. Here, the food industry should identify IoT asset tracking success stories from pharma firms—and use that knowledge for formulating an adoption strategy that won’t experience any hiccups.
Key Market Players to Watch
Dig Deeper for the Full Picture
To understand more about the technologies that can help manage current food supply chain constraints and the market opportunities for tech vendors, download ABI Research’s Digital Transformation of the Food and Grocery Supply Chain research report.
Not ready for the full report yet? Check out our Expanding Supply Chain Tracking with Returnable Transport Assets (RTAs) Research Highlight. This content is part of the company’s Supply Chain Management & Logistics Research Service.
Related Research
Report | 4Q 2022 | AN-5712
